📝We Now Expect BoC to Keep Rates High For Longer: BMO

We still expect policy rate reductions to start around mid-year, but we now look for slower rate cut cadences that will

end at higher levels. This ‘higher-for-longer’ profile for policy rates results in higher bond yields over the forecast

horizon.

We look for a follow-up rate cut on July 24, before the

Fed’s potential action (with mounting risk it could be postponed). With the paths for Canadian inflation and unemployment rates already diverging meaningfully from their U.S. counterparts, some divergence between monetary policies is justified. However, we reckon the Bank will be increasingly cautious in testing the limits of policy divergence, keeping an eye on the Canadian dollar (and the inflationary consequences of depreciation)

As such, we’re projecting 75 bps in cumulative BoC rate cuts this year (down from 100 bps before) and 75 bps next year (down from 100 bps). This will push the rate cutting effort into mid-2026, and we also lifted the neutral rate by 25 bps to 3.00% (1% in real terms). The higher U.S. neutral rate had a hand here, as it did for the BoC (it lifted its range to 2¼% to 3¼%) - BMO Rates Strategy